What is a “Close” Corporation?

Posted by Katherine L. Taylor, AttorneyJan 22, 20210 Comments

Have you ever heard somebody say that they own a "close” corporation and wondered what that means?

A close corporation, sometimes referred to as a “closed” corporation, is a less formal way of running their business; the shareholders have elected to have no board of directors.

In a regular corporation, the shareholders elect board members, who run the business on a day-to-day basis. With a close corporation, the shareholders basically say, "we don't want that middle-man level or middle-woman level, we want to run the business directly ourselves."

In order to become a close corporation, the shareholders have to make a formal election and file it with the appropriate state agency (in Maryland, it has to be filed with the State Department of Assessments and Taxation).

Close corporations tend to have shareholders that are family members or have a very small number of shareholders because the purpose of becoming a close corporation is simplify the operation of the business and not create conflict. By getting rid of the board of directors, you hopefully reduce a lot of the formalities and allowing the shareholders to operate the business directly without needing to deal with the documentation of a formal board election.

If you're interested in a little bit more information, maybe you have a business that you think would benefit from being run as a close corporation, feel free to contact us. You can visit our website for contact information.

KATHERINE L. TAYLOR, ATTORNEY AND CPA

5850 Waterloo Rd

Suite 140

Columbia, MD

21045 443-420-4075

443-420-4075 (fax)